Change in Stimulating Business Innovation - Oman Oil Company - Case Study Example

Change in Stimulating Business Innovation - The Case of Oman Oil Company - Total Number of Words: 5,002 Introduction As a state-owned company, Oman Oil Company was established in 1996 in order to take advantage of the business opportunities within the energy sector (Oman Oil Company, 2014a). To meet the increasing global demands for oil, the top management of Oman Oil Company has recently made a series of huge investments (i.e. 100% shares in “Abraj Energy Services”, 100% shares in “UAE Gas Sales”, 100% shares in “Block-42”, etc.) (Times of Oman, 2014; World News Report, 2014; Oman Oil Company, 2014b, 2013). Basically, the process of continuously expanding its business is necessary as part of its business innovation. As a common knowledge, a continuous business innovation is necessary in response to the ongoing tight market situation and complexity of the oil manufacturing industry within the domestic and global markets. To create business innovation, the ability of the business organization to adapt with a continuous organizational change is essential (de Anca and Vega, 2007, p. 48). In relation to the case of Oman Oil Company, this essay will purposely compare and contrast the strengths and limitations of structural functionalism and organizational development perspective on change in stimulating the business innovation. Strengths and Limitations of Structural Functionalism in Relation to Organizational Change Commonly used in the study of sociology, the theory of structural functionalism aims to analyze the social structure and social functions of the business (i.e. community, economy, government, religion, etc.) (Appelrouth and Edles, 2008, p. 349). Aside from examining the role of a business organization within a social system, the theory of structural functionalism also tries to examine the culture, norms, and traditions that make up a business organization (Hak, 2007). The use of different types of organizational structure can affect how the business organization would allocate, coordinate and supervise certain tasks in order to achieve the organizational goal (Pugh, 1990). In line with this, the concept of functional organizational structure is known for being able to divide the available human resources based on their specific role, expertise, work activities, and skills (i.e. marketing, human resources, accounting, R&D, etc.) (Grieves, 2010, p. 9, 17; Daft, 2008, p. 316). Aside from increasing the company’s overall production efficiency, the use of functional organizational structure can also increase the company’s ability for specialization (Grieves, 2010, p. 17; Hitt, Ireland and Hoskisson, 2007, p. 344; Donaldson, 1995, p. 39). In most cases, one of the most obvious reasons why businesses that adapt the use of structural functionalism are more effective and efficient is due to the fact that its available human resources are able to easily function and coordinate their assigned tasks within a fixed system (Grieves, 2010, p. 12). In relation to organizational change, one of the most obvious strengths of the structural functionalism is that this concept relies much on the use of “systems and structures” (Grieves, 2010, p. 6). In the process of examining the possible close relationship and interrelationship between structure and function, Grieves (2010, p. 9) explained that the business organization is expected to easily manage the company as the business continuous to grow and expand in terms of geographic region and its business function. In the case of Oman Oil Company, this particular company invested not only in the manufacturing of petrochemical products but also in power distribution, shipping, exploration and production, refining and marketing, energy infrastructure, and metals (Oman Oil Company, 2014a). In the absence of organizational structure, it would be very difficult on the top management team of Oman Oil Company to manage and control each of these seven (7) different types of product lines. Functional organizational structure is known for its vertical top-down management approach (Daft, 2008, p. 316). When it comes to managing organizational change, Grieves (2010, p. 8) mentioned that most of the theorists behind the structural functionalism strongly support the idea that failure of the business organization to implement chance is often times being caused by a failure in internal function within the structure or system. For this reason, the theorists of structural functionalism strongly suggest the need to redesign or realign the organizational structure based on their functionality as a way to address the continuously changing challenges within the external environment (vom Brocke and Rosemann, 2010, p. 204; Grieves, 2010, p. 8). Furthermore, due to the fact that the theorists of structural functionalism view the business “organization as a whole”, there is a higher chance wherein business managers who adapts the use of structural functionalism theory are more able to secure the entire business organization as it address organizational change caused by social factors within the external environment (Grieves, 2010, p. 9). Because of the presence of organizational structure and system, the top management officials can easily communicate their thoughts and ideas down the line (i.e. top-down communication or bottom-up communication, etc.) (Grieves, 2010, p. 9; Gilley, Gilley and McMillan, 2009). For example, the Board of Directors of Oman Oil Marketing Company which includes Salim Bin Abdullah Al Rawas as the Chairman, Mulham Bin Bashir Al Jarf as the Deputy Chairman, Abdul Kader Bin Darwish AL Balushi as the Audit Committee Chairman/Director and the rest of the six (6) other directors can make important business decisions through a close-door meeting and eventually communicate the plan with the rest of the management team (i.e. Chief Executive Officer, Corporate Affairs General Manager, Finance General Manager, HR General Manager, etc.) (Oman Oil, 2011, p. 17). Eventually, the General Manager of the concerned department will be the one to communicate and implement a strategy with the rest of the concerned employees. In almost all business cases, the working relationship among and between staff is also important when managing organizational change (Parish, Cadwallader and Busch, 2008; Neider and Schriesheim, 2002, p. 175). In line with this, Grieves (2010, p. 9) mentioned that the adaptation of structural functionalism theory promotes a more stable informal relationship among staff by totally disregarding the “self-interest” of each employee. Because of the presence of system and structure, the entire business organization is governed by a set of business policies which eventually creates the organizational culture, norms, traditions, business practices, and beliefs (Grieves, 2010, p. 10). This further explains why different groups of employees can create a universal outlook despite the presence of structure and systems. Similar to any other types of change theories, the concept of structural functionalism has its own limitations when it comes to managing organizational change. For instance, unlike the use of organizational development theory, the use of structural functionalism theory does not literally consider the attitude and behaviour of each employee within the system or structure. Furthermore, structural functionalism theory also does not consider the fact that external environmental forces are constantly changing over time (Grieves, 2010, p. 11). As a common knowledge, negotiation is important behind a successful organizational change management (Grieves, 2010, p. 5, 18). However, because of the presence of structure and vertical hierarchy, the use of functional organizational structure may increase the risks of promoting territorial attitude among each staff. Because of the risks wherein the staff would be unwillingness to cooperate with one another, the use of functional organizational structure may indirectly impede the process of implementing organizational change. Furthermore, this type of organizational structure also makes it more difficult on the part of the business managers to maintain control and maintain well-coordinated business activities as the company geographically expand its business. Because of these limitations, Katz and Kahn (1966, p. 278) explained that business managers should consider the need to analyze the interrelationship between the natural or external environment with the social structure in business organization. As such, businesses that chose to adapt with the concept of structural functionalism could either redesign the entre organizational structure or adjust the functional relationship of each department in order to make the business cope with the complexity within the external business environment (Grieves, 2010, p. 18). The business function of Oman Oil Company is very broad and complex. For this reason, instead of focusing on a typical functional structure, the top management of Oman Oil Company had to make use of a multi-divisional structure approach (Hitt, Ireland and Hoskisson, 2007). (See Table I – Summary of Strengths and Limitations of Structural Functionalism when Managing Change below) Table I – Summary of Strengths and Limitations of Structural Functionalism when Managing Change Structural Functionalism Strength Limitations View business organizations as a social systems and structures; Assumes that the business organization is a cooperative system; Believes that failure to implement or manage chance is caused by failure in internal function within the structure or system; thus, the need to redesign or realign the existing structure based on its function; Focuses on examining the relationship and interrelationship between structure and function; Easily manage organizational change related to a continuous business expansion; Able to protect the socio-economic welfare of the business organization as a whole; Because of the presence of organizational structure and system, the top management officials can easily communicate their thoughts and ideas down the line; Informal relationship of staff within the business organization is more stable; The business organization is governed by a set of business policies; Creates organizational culture, norms, traditions, beliefs, and practices. Structural functionalism does not consider the attitude and behaviour of each employee within the system or structure; Structural functionalism does not consider the fact that external environmental forces are constantly changing over time; Structural functionalism increases the risk of promoting territorial attitude among each staff; and Structural functionalism does not consider all other important related issues and theories such as the use of effective motivating strategies, the importance of using effective leadership, organizational learning, significance of organizational culture when managing organizational change, identifying barriers to both personal and organizational growth including other related theories such as the Maslow’s hierarchy of needs, Lewin’s theory of change (i.e. “unfreeze, change, and refreeze”), Kotter’s eight-step model, and McGregor’s “human side of enterprise”. Strengths and Limitations of Organizational Development in Relation to Organizational Change In general, the concept of organizational development on change was developed based on the theory of human resources which eventually became a significant part of behavioural research and the concept of structural functionalism (Grieves, 2010, p. 5). As an example of a planned change, organizational development is all about the effort of the business organization to effectively or efficiently empower the company to reach its strategic goals (Cummings and Worley, 2014, p. 40; Cummings and Worley, 2009, p. 23). Often times, organizational development is being used to allow the business organization to effectively implement new business strategy or to handle the business challenges associated with organizational change (Cummings and Worley, 2009, p. 1). The Oman Oil Company is known for its aggressive business expansion worldwide (Times of Oman, 2014; World News Report, 2014; Oman Oil Company, 2014b, 2013). For instance, on the 12th of October 2013, Oman Oil Company acquired “100% of OXEA1” as part of its vertical integration strategy (Oman Oil Company, 2013). As part of enhancing the efficiency of its logistics, Oman Oil Company has recently signed a business agreement with the Port of Duqm (PDC) in order to establish a new company called the “Duqm Petroleum Terminal Company (DPTC)” in Duqm (Port of Duqm, 2014; Times of Oman, 2014). Because of its continuous business expansion, the top management of Oman Oil Company has recently implemented the use of the “Oracle Enterprise Asset Management (eAM) for the Oman Oil Company Exploration and Production (OOCEP)” (World News Report, 2014). Basically, eAM can be used to ensure that the company can have a smooth flow of real-time business information coming from the HR department, supply chain department, accounting and finance, purchasing department, and logistics or inventory (World News Report, 2014). In general, organizational culture plays a significant role in ensuring that the process of merging and/or acquiring another company will become successful (Caiazza and Dauber, 2013). Because of the differences in organizational culture, the inability of the business managers to manage cultural differences of the employees can lead to a failed merger and acquisition (Sanda and Adjei-Benin, 2011). When it comes to the need to reassign or redesign the existing job description, the differences in cultural practices can also create not only “resistance-to-change” but also work-related stress and tension among each employee (Elsass and Veiga, 1994). In most business cases, two different companies that merged together require the need to implement organizational change in order to remove redundancy in operational costs and the role or responsibilities in certain job posts (Michalak, 2010). This further explains why companies that enter into a merger and acquisition agreement usually end up laying-off employees (Moran and Panasian, 2005). In line with this, the presence of employees’ resistance-to-change can adversely affect not only employees’ turnover rate but also their morale and overall work productivity (Singh, Saeed and Bertsch, 2012). For this reason, one of the main challenges behind implementing new business strategies is “resistance-to-change” (Thi, 2005, p. 1). Each time an employee or a group of workers would decide not to support the newly proposed organizational change, Thi (2005, p. 1) explained that the top management of the said business organization is more likely to experience failure when implementing certain strategy in business. In reality, there will always be the risks wherein oil companies would be involved in a massive oil spills (Frynas, 2012). In line with this, several studies pointed out that oil companies that implements corporate social responsibility (CSR) initiatives can create a sustainable business (i.e. “green” or environmental innovation, projects that can benefit the society or the country’s economy, etc.) (Hillestad, Xie and Haugland, 2010; McWilliams and Siegel, 2010;). In doing so, the oil company can win the trust and support of people as it creates more competitive advantage (Hillestad, Xie and Haugland, 2010; McWilliams and Siegel, 2010; Smith, 2007) and added value for the oil and gas company (McWilliams and Siegel, 2010). Recently, Oman Oil Company was reported to win the support and active voluntary participation of its 200+ employees to help out disabled children in Muscat (i.e. blind children in Al Noor Associated for the blind in Sohar) (Albawaba Business, 2014). Specifically the active and voluntary participation of Oman Oil Company employees strongly suggest that the business managers in this company practice good leadership. The fact that Oman Oil Company’s employees were active in their voluntary participation strongly suggest that this particular oil company practice open communication line between the top-down management. In case the top management of Oman Oil Company has failed to communicate their CSR initiatives to their employees, there is a slim chance wherein the top management of this company could convince a large group of employees to spend a little of their time helping out disabled children. In relation to organizational change, one of the obvious strengths of organizational development perspective is that this particular theory in change management focuses on improving the personal and organizational behaviour of each human resources (Grieves, 2010, p. 6). As a planned approach to organizational change, business managers who adapted the concept of organizational development are most likely to determine first whether or not employees’ resistance-to-change are based on negative thoughts or emotions (i.e. anger or fear of losing their job security) before they would finally come up with an effective solution that will allow them to convert each employee’s negative thoughts or emotions into something that is more positive (Chew, Cheng and Petrovic-Lazarevic, 2006; Poole and van de Ven, 2004, p. 45). Basically, the use of this particular change strategy is often times more effective when it comes to winning the trust, support, and commitment of each employee when implementing a new business strategy or a plan (Parish, Cadwallader and Busch, 2008). Another strong points of organizational development is that this particular concept or change theory does not only tackle important issues related to motivating factors, the importance of using effective leadership, organizational learning, significance of organizational culture when managing organizational change, identifying barriers to both personal and organizational growth including other related theories such as the Maslow’s hierarchy of needs, Lewin’s theory of change (i.e. “unfreeze, change, and refreeze”), Kotter’s eight-step model, and the McGregor’s “human side of enterprise” (Miller, 2011, p. 195; Pearson, 2011, p. xvi; Grieves, 2010, p. 23; Cummings and Worley, 2009, p. 23; Gilley, Gilley and McMillan, 2009). In other words, as compared to the concept of structural functionalism, the theory of organizational development is broader and wider in terms of its scope particularly when it comes to managing organizational change. In the process of being able to identify barriers to organizational change, Pearson (2011, p. xvi) explained that the use of organizational development interventions can allow the business managers to explore all possible ways that can further improve employees on an individual level as well as within the organizational level. For example, the Lewin’s theory of change plays a significant role when it comes to planning on how to respond to organizational change. In line with this, the theory of Lewin’s can be used as a systematic approach when it comes to planning on how to address organizational change (Griffin and Moorhead, 2014, p. 529; Harsh, 2011, p. 326; Chew, Cheng and Petrovic-Lazarevic, 2006). For example, the “unfreeze” stage allows the business managers to acknowledge the need to implement organizational change followed by the need to create a strategy on how the entire team members would go about the change (Griffin and Moorhead, 2014, p. 529). After testing the effectiveness of the newly implemented strategy, the business managers could call for a “refreeze”; which means that the entire team members could make the change become a permanent practice (Griffin and Moorhead, 2014, p. 529; Harsh, 2011, p. 326). Basically, these three (3) major steps are necessary when it comes to changing the business organizations’ old habit or business practices into something that is entirely new (Griffin and Moorhead, 2014, p. 529). In line with this, Harsh (2011, p. 326) explained that the “unfreezing” stage is important when it comes to overcoming the pressure coming from each employee’s resistance-to-change and the need to encourage the entire team members to conform to the necessary changes. After the “unfreezing” stage, the newly created change can eventually become a part of the business norms or a universally accepted behaviour (Chew, Cheng and Petrovic-Lazarevic, 2006). Similar to the Lewin’s theory of change, Kotter’s eight-step model is also another useful change model (Kotter, 1996). In line with this, Kotter clearly explained that the process of managing change should first start by creating “a sense of urgency” followed by creating “a guiding coalition” and “a vision” (Gilley, Gilley and McMillan, 2009, p. 78). Eventually, the business managers are expected to verbally or non-verbally communicate the vision to the rest of the employees (Kotter, 1996). In the process of empowering each employee to act on change, there is a higher chance wherein the business manager could win the support of the team members. After planning and creating short-term wins, the next step in Kotter’s model is to combine all necessary improvements as a way of creating more change before finally considering change as a new business approach (Gilley, Gilley and McMillan, 2009). Several past and current studies strongly suggest that the mere act of motivating each employee to support the implementation of new business strategies is important; especially behind a successful change management (Gilley, Gilley and McMillan, 2009; Parish, Cadwallader and Busch, 2008; Chew, Cheng and Petrovic-Lazarevic, 2006). In line with this, the Maslow’s theory of hierarchy of needs identified the basic human needs as follows: (1) physiological needs; (2) safety needs; (3) belongingness; (4) esteem needs; and (5) the self-actualization needs (Robbins, 2009, p. 145; Lauby, 2005, p. 1). All other similar theories include the Herzberg’s motivation-hygiene theory (i.e. hygiene needs and motivation needs), McGregor’s theory X and theory Y, and the McClelland’s theory which includes the following needs: (1) achievement needs; (2) affiliation needs; and (3) the need for power (Robbins, 2009, pp. 145 – 148; Lauby, 2005, pp. 1 – 3). Basically, all these theories are equally important particularly when it comes to understanding internal and external factors that can effectively motivate employees (Robbins, 2009, pp. 145 – 148; Lauby, 2005, pp. 1 – 3). Since organizational development focuses on analyzing and determining ways on how to effectively improve both personal and organizational behaviour, the concept of organizational development is often used; and considered more applicable when it comes to managing organizational change (Grieves, 2010, p. 7). Another important strength of the organizational development is that it acknowledges the need to identify first the main cause of problem before planning on how to effectively address or solve internal problems related to change (Grieves, 2010, p. 8, 24). In line with this, Gilley, Gilley and McMillan (2009, p. 75) and Parish, Cadwallader and Busch (2008) explained that the process of “creating a vision” is necessary when guiding the entire team members on how to implement organizational change. Through necessary training intervention, the application of theory on “behaviour modification” is important when it comes to the need to promote personal growth among each staff (Grieves, 2010, p. 24). To be able to effectively manage organizational change, business managers who choose to adopt the theory of organizational development are required to address personal and organizational issues that can hinder the development of change program (Grieves, 2010, p. 8). Similar to the concept of structural functionalism, the concept of organizational development also has its own limitations when it comes to addressing the need for organizational change. First of all, the theory behind organizational development does not literally consider the importance of organizational structure and systems. It simply means that the theorists of organizational development do not view business organizations as a social systems and structures nor does it assume that the business organization is a cooperative system. In fact, organizational development theorists do not technically consider internal function failure to be the main cause of a failed organizational change management. Therefore, theorists of organizational development may not be able to clearly explain how organizational structure as a system is important in terms of managing organizational change. (See Table I – Summary of Strengths and Limitations of Organizational Development when Managing Change below) Table II – Summary of Strengths and Limitations of Organizational Development when Managing Change Organizational Development Strength Limitations Focuses on the need to improve both personal and organizational behaviour; More effective in terms of managing organizational change; Identify the main problem before planning on how to address organizational change; Tackle other important related issues such as the use of effective motivating strategies, the importance of using effective leadership, organizational learning, significance of organizational culture when managing organizational change, identifying barriers to both personal and organizational growth including other related theories such as the Maslow’s hierarchy of needs, Lewin’s theory of change (i.e. “unfreeze, change, and refreeze”), Kotter’s eight-step model, and McGregor’s “human side of enterprise”; Allows business organizations to anticipate the need to implement organizational change caused by external factors through planning; Organizational development does not consider the importance of organizational structure and systems; Organizational development does not view business organizations as a social systems and structures; Organizational development does not assume that the business organization is a cooperative system; Organizational development theorists do not consider internal function failure to be the main cause of a failed organizational change management; and Organizational development theorists do not focus on examining the relationship and interrelationship between structure and function. Significance of Corporate Governance in Managing Organizational Change Specifically the concept of corporate governance is similar to the concept of business ethics in the sense that corporate governance is be viewed as a universally accepted system in which the oil companies are expected to be managed and controlled (de Plessis, Hargovan and Bagaric, 2011, p. 3). In line with this, the process of implementing organizational change is possible by observing the concept of governance (Grieves, 2010, p. 7). Even though corporate governance does not have any direct impact on implementing organizational change, the mere act of observing the rules on business governance could somehow preserve and maintain the trust, support, and loyalty of its stakeholder (i.e. employees, private and public investors, accredited suppliers, etc.). A significant part of a good corporate governance practice is to fight against the practice of bribery and corruption when managing the business (Agere, 2000, p. 57). In line with this, several news reports provided evidences that Oman Oil Company is totally against the practice of graft and corruption (Carlisle, 2014; Reuters, 2014; gulfnews.com, 2013). For instance, Carlisle (2014) reported that an “anti-graft campaign” was ordered by the sultan in 2011. Last February 27, 2014, Ahmad al-Wahaibi – the CEO of Oman Oil Company was sentenced to 23 years in jail because of the evidences showing that he was accepting bribes and violating the laws on money laundering (Reuters, 2014; gulfnews.com, 2013). Discussion It is clear that both the concept of structural functionalism and organizational development are useful when it comes to implementing organizational change. However, each of these two (2) change concepts has a set of strengths and limitations. Therefore, to be able to maximize the full use of both structural functionalism and organizational development, it is best to consider specific aspect in business organization that needs to be directly addressed. For instance, does the implementation of change require adjustments in employees’ personal and collective behaviour? If yes, then the use of organizational development theory is the best choice when it comes to managing organizational change. However, if the main business concern is about knowing how to effectively communicate with a large group of employees as a result of a continuous business expansion, then the business managers may opt to choose the concept of structural functionalism more than the use of organizational development. In relation to the case of Oman Oil Company, there are so many reasons why this particular oil company should make use of the concept of structural functionalism. First of all, one has to consider that the Oman Oil Company has invested not only in the manufacturing of petrochemical products but also in power distribution, shipping, exploration and production, refining and marketing, energy infrastructure, and metals (Oman Oil Company, 2014a). In the absence of a multi-divisional structure approach, it would be very difficult for the company’s CEO to manage the business operations of these seven (7) different types of product lines. Furthermore, the Oman Oil Company is known for owning 100% shares in “Abraj Energy Services”, 100% shares in “UAE Gas Sales”, 100% shares in “Block-42”, 100% shares in “Abu Tabul”, 25% shares in “Service Contract in Rima Small Fields”, 20% shares in “Service Contract in Karim Small Fields”, 20% shares in “Oil Exploration and Production in Mukhaizna Concession”, 20% shares in “Oil Exploration in Caspian Offshore Concession”, and 20% shares in “Oil Exploration in Dunga Concession” (Oman Oil Company, 2014b). In business, owning 100% shares would mean having a full control over the management and daily operations of the said companies. In the absence of a clear organizational structure, the CEO of Oman Oil Company will have more difficulty in monitoring and managing the business performance of these companies. The application of structural functionalism approach alone will never be effective in the case of Oman Oil Company. Because of the continuous business expansion from one country to another, one cannot deny the fact that this company has a diverse group of employees. For this reason, there may be some cases wherein differences in cultural beliefs may create a little tension within the working environment. To help effectively solve organizational problem caused by miscommunication or the differences in cultural beliefs and practices, the application of organizational development theory is more appropriate. When it comes to managing organizational change, a lot of different useful theories can be learned from organizational development. Assuming that the manager of Oman Oil Company needs to set a plan for organizational change, the manager can make use of Kotter’s eight-step model. Using this particular model as a template, the manager of Oman Oil Company can be guided on what to do in each of the eight-step model. By incorporating the use of other related theories (i.e. organizational leadership, organizational learning, effective motivation techniques, etc.), the manager of Oman Oil Company can have a higher chance of being able to win the trust, support, and loyalty of its target audiences. Conclusion and Recommendations Despite the differences in its strength and limitations, both the concept of structural functionalism and organizational development are equally useful in the case of Oman Oil Company. In fact, the application of both structural functionalism and organizational development are strongly recommended in the case of Oman Oil Company. In the process of knowing more about these two (2) different set of strengths and limitations, the top management officials of Oman Oil Company will be able to easily address internal conflicts which may arise out of the need to implement some form of organizational changes. Using either the Kotter’s eight-step model or the Lewin’s theory of change, the top management officials of Oman Oil Company are strongly advice to identify first the nature of the problem before deciding on whether or not to make use of the concept of structural functionalism, organizational development, or both. In the process of reflecting more on the nature of the problem, the top management officials of Oman Oil Company will be able to draw a clear vision on how this particular oil company should effectively address the main problem. 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